March 2. A few option notes…
Options in the long end continue to be mostly conservative plays for the downside. For example, TYM 119/121ps 2x (+) vs 124/124.5cs 1x (-) paper paid 1 for 15k, ps over. On Friday there was a large buyer of TYM 121/122.5/124 put fly for 15.
Week to week changes show that shorter maturity vol was much better bid than long term. For example, on Friday Feb 21, FVM 119.5 straddle settled 1’16 or 2.7 vol. On Friday the FVM 120 straddle settled 1’23 or 3.0. In comparison, ten year vol barely moved. One week ago TYM 124.0 straddle settled 2’19 or 4.7 and Friday I marked 124.5^ at 2’14, also 4.7.
The flatter curve accounts for some of the relative strength in shorter maturity vol. For example 2/10 w-o-w change was 242 to 233 (though decline was partially due to new 2 year), and 5/30 fell to a new recent low last Friday of 208, down from 216. Similarly, lack of mortgage activity is sucking premium away from longer maturities. Besides the downside plays in TY noted above, there has been consistent selling in TYM strangles, notably 122/126 sold at 50 and 51. (settled 55 Friday).
Week over week straddles in Green June and Blue June midcurves showed little change. 2EM 9850^ was unchanged at 40.5 and 3EM 9750^ was 45.5 one week ago vs 45.0 on Friday. As noted previously, futures ranges have been quite tight over the month of February with TYM 124-28 to 123-155.
